Over the last couple of years, many large corporate organizations have made a commitment to increase their ability to focus on supplier relationship management. Companies like Toyota have benefited greatly from having such close contact with their suppliers. The industry has recognized that a healthy relationship with your suppliers can create a competitive advantage.
What is Supplier Relationship Management (SRM)?
In 1983 Peter Kraljic of McKinsey & Company, Inc. published an article through Harvard Business Review titled “Purchasing Must Become Supply Management.” Kraljic suggested that corporate buyers should be more conscious of the suppliers in their supply chain as their fates are intertwined. This article is often credited as the introduction of modern Supplier Relationship Management (SRM).
Modern SRM is best described as the process in which a company manages their relationships with businesses within their supply chain by evaluating them and distributing attention as needed.
Achieving SRM generally consists of three steps:
- Supplier segmentation
- Creating a strategy
- Executing the strategy
Today, SRM has become an integral part of any successful business. Developing and maintaining relationships with your suppliers can result in big opportunities for growth. For example, Toyota has made a name for itself as a leader in SRM. About 15% of their 250 European suppliers are considered strategic partners and co-developers.
Many of these suppliers act as partners who innovate and are free to create proposals for new, efficient production methods and products. Toyota’s open, in-depth relationship with their suppliers has allowed them to create more efficient practices that are mutually beneficial.
5 Ways to Strengthen Supplier Relations
1. Treat your suppliers as partners
Suppliers can offer so much more than a transactional relationship. When suppliers feel as if they are part of the business, they are much more likely to raise legitimate concerns and offer effective solutions. Keeping suppliers updated on business processes can create a sense of loyalty and help foster partnership.
2. Pay suppliers on time
Cash flow is a vital concern for any business. Late payments can result in lost credibility and trust from a supplier. Adherence to a payment schedule shows a supplier you are worth their time, eventually leading to stronger relationship which can result in more opportunities for mutual growth.
3. Invest in technology
Technology continues to develop in new ways, and SRM practices have followed suit. Investing in software, such as a modern ERP system, can simplify SRM. An effective ERP system allows the company to record all important supplier information in one centralized database. This information can be used to further evaluate risk and effectively manage all of your supply chain.
4. Create detailed supplier relationship agreements
A supplier relationship agreement is a form where both parties list their expectations of the partnership. An agreement can include anything from price to frequency of communication. A thorough agreement can help reduce miscommunication and potential confusion, allowing for a more cohesive relationship, which ultimately develops trust and strength in the partnership.
5. Evaluate Risks
A major component of SRM is knowing which supplier to allocate certain resources to. For example, if a supplier only contributes a small amount in the total supply chain, it may not be effective to dedicate as much time to cultivating a relationship with them as it would with a more prominent supplier. Creating a list of your suppliers and gauging their risk and contribution can determine which suppliers are worth the limited amount of time available for developing a long-term, in-depth relationship.
Interested in improving your supplier relationships? An ERP system can help get you there. Get to know Kissinger Associates. For decades, we’ve helped growing companies in manufacturing and distribution by providing them with systems that benefit their unique business. Get to know more about our team and contact us for a free consultation.